Big spenders: the rise of the spend-out foundation

A self-titled foundation established to leave a legacy in the world used to be the prerogative of the very wealthy, but increasingly philanthropists are abandoning their vanities in favour of high-impact spend-out models for their trusts. CampdenFB reports

The study of philanthropy is an imprecise science and there is no formula that can predict why a wealthy individual would decide to give and to which causes, much less why they would decide it’s time to stop.

Sir Peter Moores has been one of the UK’s most prolific private arts philanthropists for the past 50 years. He has spent more than £225 million (€265.7 million) funding individual opera singers, opera performances, art galleries and museums, as well as making significant endowments to health and education charities. His foundation, the Peter Moores Foundation (PMF), has undeniably been a boon to British arts. It has helped launch the careers of many young singers who may never have had the chance to tread the boards, assisted in airing many forgotten operas, and has let Sir Peter share his passion with thousands of people. Yet, in late 2012, he announced that his foundation was closing its doors. It is now in the process of spending out what remains of its capital in one final grand project.

So why did he decide it was time to let the curtain drop for the final time? To put it bluntly, at the age of 81, the second-generation heir to the Littlewoods fortune – a British mail order clothing and scratch card company established in the 1920s – knew that his end was in sight, and he was more than a little anxious about handing the reins of his foundation to a relative or trustee. He famously told the Guardian, “You can’t trust anyone to do what you would have wanted because if they’re any good, and you wouldn’t use someone who wasn’t any good...they’ll have their own ideas.” He said elsewhere that he was worried years down the line the foundation could end up funding a dogs’ home, hardly the current focus of his philanthropy.

In an interview at his new home in Oxford, southern England, having recently downsized from a nine-bedroom manor in Lancashire in the north, Sir Peter says he harbours no regrets at his decision to spend down and take a step back from the art scene. “I’m very glad not to have to do quite a lot of these things,” he says. “This evening, I’m going to London, staying in a hotel, getting an early train to Scotland and celebrating something at the Scottish National Gallery and coming back again – I’m 81!” And despite making the arts his life’s work, there was never any question of handing the foundation over to his two children. “I thought it would be better not to ask them,” he says.

He is not forthcoming about his time in the Littlewoods family business, which was founded by his father, Sir John Moores, a working-class entrepreneur from a family of eight children in Lancashire. Still, Sir Peter gives the impression it was not always the nicest experience and hardly inspired him to try to use his foundation to bind his own family together, saying “I had enough of family affairs in Littlewoods you see, my father was a – what’s a polite word I can use – I can’t think of a polite word actually.” Sir John was philanthropic, making significant donations to several arts institutions and to the university in Liverpool that bares his name, but he gave in an ad-hoc fashion. Sir Peter says, “My father didn’t have [a foundation] and he ran his company until he died aged almost 100, so he was never someone that was into succession.”

Plum Lomax, a senior consultant at advisory firm New Philanthropy Capital, says: “Some people choose to set up a foundation in perpetuity for their children and future generations to run. Others are very wary of this approach. This is the whole question of do you want to leave a legacy? Is it a burden to leave it to your children to then run, or is that actually the whole aim of setting up the foundation in the first place? To create this binding factor that will bring the family together.”

Sir Peter made the choice to spend-out for personal reasons, but increasingly philanthropists are choosing to spend-out during their lifetimes rather than trying to set up a structure that will allow their foundation to exist in perpetuity to be their legacy in the world. “I think there is an increasing trend for donors to become more actively involved and engaged in their philanthropy,” says Lomax. “Rather than just writing out cheques they want to get involved as a board member, or use their business expertise, or to be able to leverage other networks they might have. These things are much easier to do if their giving is focused within their lifetime.”

Many philanthropists will start a foundation without an exit strategy, and will then decide when it has reached the point where it makes sense to spend out – as Sir Peter did with his. But the phenomenon of the “spend-out” foundation is gathering momentum in the world of philanthropy – trusts that are opened with a clear shut down date 50, 30 or maybe only 10 years into the future. “I think a lot of people who are approaching philanthropy in the spend-out way really want to tackle the causes of a particular problem as quickly as possible,” says Lomax. The trend is particularly strong among emerging donors, many of whom, according to Lomax, have generated their own wealth.

In their book Richer lives: Why rich people give, philanthropy experts Beth Breeze and Theresa Lloyd examined trends in philanthropy among a sample of 82 wealthy donors. Forty of the respondents were first interviewed in 2002 and then interviewed again in 2012, while the remaining 42 were newly emerged donors who were only interviewed in 2012. It found that 30% of new donors had made the decision to set up spend-out foundations, while a further 30% were actively considering adopting a spend-out model. On the other hand, only 16% of established donors had a spend-out trust, and only 19% were considering it.

Having a built-in finishing date can be a very handy mechanism to force a foundation to hone its focus and deliver results. The largest private philanthropic vehicle in the world, Bill and Melinda Gates’ eponymous foundation, is designed to be spend-out affair. It currently has an endowment of $38.3 billion (€28.4 billion), and all this money has to be spent 20 years after the death of Bill or Melinda, depending on which of them dies second. That’s no small task.

The Beldon Fund – a US environmental foundation set up by businessman John Hunting – is another example of a foundation born to spend out. It was founded in 1997 and endowed with $100 million, and was committed to spending down in 10 years. Hunting was of the opinion that today’s donors need to solve today’s problems, and the environment was not a problem that could wait. Foundations in the US are required by law to donate 5% of their assets annually to avoid losing their charitable status. These rules vary from country to country, and in the UK there is no minimum level of donations.

Hunting felt foundations set up to exist in perpetuity often became lazy and formulaic in their philanthropy. Frequently in the US, the original endowment would be conservatively managed to give 6% to 7% returns, and only the obligatory 5% generated from this interest would be paid to grantees. The goal of these types of organisations, Hunting thought, was self-preservation rather than tackling the issues they originally aimed to address. This lethargy got worse if the foundation lacked the driving force of a living founder, however, the Beldon Fund found spending out in such a short space of time brought its own unique set of management problems.

Not least of these was the prospect of leaving their grantees without support once the Beldon Fund shut its doors. This is a concern for foundations in the process of spending down, but also a problem for any charity that decides to reallocate funding from one grantee to another. New Philanthropy Capital advises that a foundation should never contribute above 25% to 35% of a single charity’s income to avoid creating dangerous dependencies. Atlantic Philanthropies, founded by US retail businessman Charles Feeney, faced the same problem when preparing its spend-out strategy. It drew heavily on the experiences of the Beldon Fund, even though it is a much larger organisation. With an endowment of $3.5 billion, it is currently the biggest foundation ever to go through the process of spending out.

Both foundations took care of their grantees by slowly tapering their endowments to wean them off their cash. Atlantic Philanthropies set up a system to identify and focus on “dependent” donors – those that were receiving more than a third of their income from the foundation, or were operating in countries where philanthropic money is scarce. Both foundations also concluded that a spend-out foundation had an obligation to engage other donors and to try and create donor networks to avoid leaving a funding vacuum in a particular area once it has spent all its assets.

Foundations that choose to spend out also have to design a monetary strategy to ensure that they always have enough liquid assets to reach their grant making goals, but also that they don’t run out of money too early. Sarah Ridley is the former executive director of the Tubney Charitable Trust, a UK-based charity that focused on the environment and animal welfare, among other causes. It spent out over 15 years, making £65 million worth of grants over that time. Ridley thinks caution is best when it comes to managing the spend-out process. “Spending out is not something that is particularly complex,” she says, “but it is something you have to do very carefully because you can’t go beyond zero on your balance sheet.”

Another practical challenge facing all spend-out foundations is attracting and retaining talented staff members when they know their job is finite. However, in their accounts of their experiences, the Beldon Fund, Atlantic Philanthropies and the Tubney Trust reported, perhaps surprisingly, that being spend-out organisations actually helped them keep their staff. One of the Beldon Fund’s employees said: “There was a real excitement and challenge to Beldon’s venture, particularly the prospect of being there on the ground floor to build something. You have this incredible freedom to do things differently.”

Ridley, now a freelance philanthropy consultant, points out it is very difficult to maintain an endowment and grow it, even if the foundation is supposed to exist in perpetuity. Eventually it will have to shut up shop because it has run out of money. Having a spend-out strategy lets the founder or another decision maker land the plane rather than letting it crash. “I think one of the great things about spending out is that it requires you to focus on what you are wanting to achieve, and encourages a kind of discipline that I think all foundations should have, but it becomes particularly important in a spend-out,” Ridley says.

There is a growing conversation around the spend-out option – the Beldon Fund, Atlantic Philanthropies and the Tubney Trust produced books or reports about the way they handled the process. Sir Peter Moores, on the other hand, has never taken a very analytical approach to his giving, remarking that he isn’t in any kind of philanthropy “club”. But he does have a philanthropy philosophy, even if it isn’t particularly structured, and he can’t see the point in vague, one-off donations. “If you’ve started something you’ve got to help it go on, you can’t help it go on forever but you can indicate to people how they could do it and what they could do and where they could ask as well,” he says, unwittingly echoing the views of many new donors. He is, without even realising it, an old-school philanthropist with very up-to-date ideas. Who knows? As more donors go for the spend-out model, philanthropy could be entering an era of spend, spend, spend.

The Swansong Project

For its grand finale, the Peter Moores Foundation is funding projects for some of the opera companies that it has helped the most over the last 50 years. The eight grantees are the Birmingham Opera Company, English Touring Opera, Opera North, Scottish Opera, Welsh National Opera, English National Opera, The Royal Opera Covent Garden and Glyndebourne, and their shows will be staged between 2013 and 2015. All the companies involved would not have been able to stage these shows without the support of the PMF and include Verdi’s Otello (pictured), Wagner’s Die fliegende Hollander and Donizetti’s Tudor operas Anna Bolena, Maria Stuarda and Roberto Devereux, among others. Helen Anderson, a spokeswoman for the PMF, said they picked the name “Swansong” because the press would probably dub it that anyway, and it seemed fitting since it was an opera project. “The purpose of the Swansong Project is to give an example of what can be done and hopefully there will be people interested in picking up that baton,” she said.

Many opera singers have thrived because of the financial support of the PMF, but as Anderson says, “often the most difficult time is when singers have left college and are just beginning to spread their wings in the professional world. It’s a difficult patch because they still need to be doing their studying and there have been a good many of what we call the “PMF scholars” who have received help to go and study a particular role to help them on their next steps.” But Sir Peter is clear about who he wants to enjoy the PMF’s projects, saying: “The people you want to benefit are people who wouldn’t normally go to the museum or opera, and might not normally go because they don’t know what it’s about.”